On January 2, Year 7, Drew company issued 9% term bonds dated January 2, Year7, at an effective annual interest rate (yield) of 10%. Drew uses the effective interest method of amortization. On July 1, year 9, the bonds were extinguished early when Drew acquired them in the open market for a price greater than their face amount.

On September 1, Year 9, Drew issued for cash 7% nonconvertible bonds dated September 1, year 9, with detachable stock purchase warrants. Immediately after issuance, both the bonds and the warrants had separately determined market values.

Using the information provided to the right, check the appropriate box to indicate which answer best completes each statement below.

Statement		Answer
1	The bonds were issued at a		Premium		Discount
2	The amount of interest expenses was higher in		Year 7		Year 8
3	The extinguishment resulted in a		Gain		Loss
4	The gain/loss on extinguishment is a component of		Operating Income		Net Income
5	The portion of the proceeds allocable to the stock warrants is accounted for as		Stock warrants outstanding		Paid-in capital